Beneficial variations invalidated by TUPE transfer


What is the position if business owners employed by their own company award themselves substantially enhanced ‘golden parachute’ terms in advance of a TUPE transfer, confident in the expectation that those liabilities will be picked up by the unwitting transferee?  This was the principal issue before the EAT (HHJ Shanks) in its wide-ranging judgment in Ferguson & Ors v Astrea Asset Management Ltd, handed down last Friday.

The factual findings of the Employment Tribunal had been that these amended terms (including guaranteed bonuses and generous new termination payments) were made “by reason of” the intended transfer, and lacked any legitimate commercial purpose.  They were designed to compensate the Claimants for the transferor’s loss of business (in which they had stakes), knowing that this would be paid at the expense of the transferee.   They were therefore void.

The appeal dealt with four separate matters, but of most interest will be its endorsement of the Tribunal’s principal conclusion.  The EAT held that Regulation 4(4) of TUPE 2006 (“any purported variation of the contract shall be void if the sole or principal reason for the variation is…the transfer itself…”) served to invalidate not only variations which are detrimental to employees, but also those which are beneficial to them – i.e. consistent with its literal meaning, ‘all’ means ‘both detrimental and beneficial’. 

The EAT held in the alternative that if it was wrong about the interpretation of Regulation 4(4), the general EU abuse of rights principle – that its provisions should not be used to confer rights and benefits contrary to the general intent of the legislation – operated to prevent the Claimants from relying on the purported variations: the purpose of the Acquired Rights Directive was to safeguard employee rights, not substantially improve them.

The judgment is available here, with a more detailed analysis available on 11KBW’s Employment Blog here.

Simon Devonshire QC and Daniel Isenberg acted for Astrea before the EAT, instructed by David Speakman and Nicholas Marshall of Linklaters LLP (Simon Devonshire QC appeared with Edward Capewell before the Employment Tribunal).